the bitcoin effect

The widely-held belief that for-profit investments can only maximize financial returns and social purpose can only be pursued through charity—is obsolete. For the next generation, value has to be
…

The widely-held belief that for-profit investments can only maximize financial returns and social purpose can only be pursued through charity—is obsolete. For the next generation, value has to be created and shared across both sectors and by everyone. Creating shared value however, can not happen through silos of social responsibility or philanthropy, it has to be a values-based investment which is why crowdfunding, pay-for-success, venture philanthropy, impact investing and other social finance vehicles are becoming so powerful.

Digital Anarchy: The Bitcoin Effect examines the potential to democratize financial exchanges by providing digital access to capital. Though one-third of humanity remains unbanked, remarkably more than one billion of these people has access to a mobile phone and thus could use bitcoin (or a derivative thereof) to participate financially. Considering the framework of “humanitarian” capitalism, the fact that bitcoin does not require a central authority to qualify or limit the participation of another human being is an important differentiator to fiat and bank-controlled instruments. This presentation argues that the innovation of bitcoin and the blockchain not only has the capacity to build registries of multi-entity contracting, it also offers the potential to create self-enforcing “smart contracts” between free individuals. Ultimately, the transparency of the blockchain has the potential to end corruption and empower a free society.

Transcript

1.
SEPTEMBER 2014
THE RISE OF THE TRANSFORMERS
DIGITAL ANARCHY:
THE “BITCOIN” EFFECT
social finance
social entrepreneurship
social good
LEE FOX

2.
“The groundswell of peer-to-
peer exchanges has
empowered the people.”
the rise of the transformers
Evolutionary leaps in the history of human progress are directly
linked to the adoption and adaptation of powerful tools both
invented and discovered.
The arch of humanity is shaped by these tools, as the norms of
one ‘Great Age’ are chiseled away in favor of the next. Just as
fire, language, agriculture and machinery moved us from ‘Stone’
to ‘Industry,’ new developments in digital, mobile and social
technologies are shifting us from the age of ‘Information,’
into the age of ‘Transformation.’
Whereas the byproduct of both the first and second industrial
revolution was the centralization of “power” — inclusive of
communication technologies, energy resources, medical
services and financial products — the byproduct of this new era
is decentralization.
The groundswell of peer-to-peer exchanges across mobile and
social platforms is empowering people everywhere and
anywhere to produce and share with as much authority as they
are able to consume and buy.
Today, 41% of households worldwide connect to the internet.
“Peers” have an unprecedented opportunity to participate
without barriers of time, distance, age or socio-economic status.
In fact, worldwide mobile app users are expected to reach 4.4
billion in the next three years, more than half our global
population. Already, SIM card penetration is at 90% worldwide.

4.
Historically technology adoption has always been slower for
aging generations, which explains the existing divide between
the younger “Transformers” (Millennials, GenZ and Alphas) and
the older “Adopters” (GenX, Boomers and Matures).
Being raised with “cyber” as a crib to career identity has evolved
the psyche of Transformers very differently than the generations
before them. Beyond sharing personal resources and services,
Transformers freely contribute knowledge assets — inclusive of
software code, metadata, process documents, audio/video and
image artifacts. This highly social and collaborative behavior has
exploded so much so, that in the United States, 40% of the U.S.
population actively engages in some kind of peer-to-peer
exchange.
Mirrored across the globe, hundreds of millions of people now
give money (via crowdfunding), organize political activities (via
micro-blogs), share major life events (via social networks),
harness free education (via crowdsourced EDU), showcase
themselves as entertainers (via video and music apps), produce
and review information (via blogs and social commenting) and
connect with unknown “peers” who similarly share the same
passions (via social gaming and interest-driven communities).
!
Nonetheless, the free-exchange and reuse of assets goes against
the core-values of the aging Adopters. Thus, policy-makers and
business executives (largely comprised of the older generations),
are struggling to reconsider how economic innovation and growth
can be supported in a decentralized, open-sourced, sharing
economy where access is more important than ownership.
“Adopters are the
parents & grandparents
who believe in
centralized authority
and regulation.”

5.
As it turns out, “humanitarian” capitalism — which also seeks a
positive return for people and planet — has greater opportunity in
the Age of Transformation as compared to “proprietary”
capitalism which seeks pure profit above all else. Though social
responsibility has long been intertwined with business innovation,
Transformers are natural-born social entrepreneurs and measure
success with a triple bottom line.
Limitless access to the open web (in developed nations) has
created a heightened awareness to global issues. Likewise,
cause marketing, spoon-fed to Transformers since birth, has
shaped an ideology that both people and businesses have a
moral obligation to make the world a better place.
According to the 2014 Millennial Impact Report, a whopping 94%
of young people surveyed in America, are interested in using their
skills to benefit a cause. Millennials want to have the ability to
pursue their passions and “help” with “creative contributions” in
both their personal and professional lives.
!
It’s worth noting that GenZ Transformers are also mature thinkers
and admirable subject-matter experts — in some cases, well
before their teen years. According to cultural strategists, Sparks
& Honey, 60% of GenZ want to have an impact on the world,
compared to 39% of Millennials.
!
Economic and social theorist, Jeremy Rifkin similarly remarks:
“The Empathetic Civilization is emerging. A younger generation is
fast extending its empathetic embrace beyond religious affiliation
and national identification to include the whole of humanity and
the vast project of life that envelops the earth.”
“Humanitarian
capitalism is more
palatable than
proprietary capitalism.”

6.
In a world of finite resources, massive wealth disparities and wasteful
consumption, Transformers see the socially-good peer economy as
inevitable, because “humans can not survive unless we significantly
increase what we share as equals.”
!
The widely-held belief that for-profit investments can only maximize
financial returns and social purpose can only be pursued through charity
—is obsolete. Value has to be created and shared across both sectors
and by everyone. Creating shared value however, can not happen through
silos of social responsibility or philanthropy, it has to be a values-based
investment which is why crowdfunding, pay-for-success, venture
philanthropy, impact investing and other social finance vehicles are
becoming so powerful.
!
Historically, the biggest obstacle to shared value was the gap between
the need for funds and the philanthropic and business resources available
to spend on social purpose initiatives. On the other hand, with values-based
investing, the intention to generate a measurable, beneficial social
and/or environmental impact alongside a financial one, means
investments can target a range of returns from below-market to above-market
rates, and can be made in both emerging and developed markets.
!
The growth of values-based investment models are largely fueled by US
foundations whose assets currently boast $700 billion. Family
foundations, have blossomed — from 3,200 in 2001, doling out just $6.8
billion — to 40,000 in 2014 making grants totaling more than $21.3 billion
a year!
!
With innovations in technology and finance creating a wave of young
disruptive mega-millionaires and billionaires, more and more Transformers
are at the helm of values-based investing and are looking to see how they
could employ mission and program related investments as opposed to
conventional grants. While just over 100 U.S. foundations do so, in terms
of market size, JP Morgan forecasts a dramatic increase in values-based
investing from about $9-billion today to $1-trillion by 2020.
“The peer economy is
inevitable, because
humans cannot survive
unless we significantly
increase what we
share as equals.”

7.
“The appeal of bitcoin
is that it functions as a
co-operative in a peer-to-
peer network.”
Though Transformers inherited a world where the 85 richest people have as
much wealth as the 3.5 billion poorest, it’s worth noting that Tranformers are
also the recipients of the largest generation-to-generation wealth transfer. In
America alone, some $30 trillion dollars are changing hands from Adopters to
Transformers over the span of just a few decades.
!
Currently, nine out of 10 wealthy Americans want to foster “greater income and
opportunity” through philanthropic and policy measures, according to the 2014
U.S. Trust Insights on Wealth and Worth® survey. Thus, against the backdrop of
a global recession, Transformers are looking beyond government funding,
international aid and philanthropic donations to create sustainability and shared
value. They believe all problems can be solved peer-to-peer. Indeed, annual
surveys like the Edelman Trust Barometer suggest that Transformers are putting
greater faith in peers and corporations than governments and central banks. As
a result of this sentiment, radical new forms of currency are emerging outside
the parameters of conventional money.
!
Advertising executive, Paul Kemp-Robertson, well known for his TED Talk:
“Bitcoin. Sweat. Tide. Meet the future of branded currency” spoke about
synthetic shadow economies that are created when a private entity or brand
issues its own “currency.” These range from having monetary value (such as
Amazon Coins and Starbucks credits), promotional value (such as airline and
hotel reward points) to reputation value (such as Justice Points in World of
Warcraft). The idea of corporations minting their own currencies is appealing to
45% of 24 to 35-year-olds in the United States who participated in the 2012
Contagious survey, as a point of reference.
!
If “currency” is just a store of value and a medium of exchange, then what’s the
difference between gaming, social or mobile credits and reputation points as
compared to the digital “scorecard” on a bank account? Arguably, for
Transformers there may be little to no difference, especially if the currency itself
is capable of building shared value and personal equity.
!
If centralized branded currencies appeal to Transformers, consider how much
more a decentralized digital currency, such as Bitcoin, has the capacity to be.
The appeal of Bitcoin is that it functions as a cooperative in a peer-to-peer
network.

8.
Bitcoin offers the potential to democratize financial exchanges by providing
digital access to capital. While one-third of humanity remains unbanked,
remarkably more than one billion of these people has access to a mobile phone
and thus could use bitcoin (or a derivative thereof) to participate financially.
!
Fred Wilson, a respected venture capitalist and philanthropist believes what the
internet did for media, commerce and communication, bitcoin will do for
money.
!
Considering the framework of “humanitarian” capitalism, the fact that bitcoin
does not require a central authority to qualify or limit the participation of
another human being is an important differentiator to fiat and bank-controlled
instruments.
!
One misconception about bitcoin is that it is anonymous. Technically it’s
pseudonymous. All bitcoin transactions are recorded in a public ledger called
the “blockchain,” which contains every transaction ever executed from the
beginning, until the latest transaction.
!
This innovation not only has the capacity to build registries of multi-entity
contracting, it also offers the potential to create self-enforcing “smart
contracts” between free individuals. Ultimately, the transparency of the
blockchain has the potential to end corruption and empower a free society.
!
If the public ledger of the blockchain were managing fiat money, for example,
the billions that were stolen by a Ukrainian government official could be
tracked. Votes of the people could be viewed and verified. Property rights
could be protected. Environmental, social and governance factors could be
integrated. Even charities, which have long struggled to convince donors about
the use of money, could ensure complete transparency of expenditures to
boost donor confidence. The genius of the blockchain is that it is a safeguard
for unwanted fluctuations of power and control.
!
The Age of Transformation demands that we reconsider the role of capital
markets in creating equity and shared value for society. The challenge will be
for Adopters to think like a Transformer.
“The transparency of the
blockchain has the
!
!
!
!
potential to end
corruption and empower
a free society.”

9.
THIS PIECE WAS ORIGINALLY
DEVELOPED TO EXPLAIN A
PANEL PROPOSED FOR SXSW2015
DIGITAL ANARCHY:
THE “BITCOIN” EFFECT
LEE FOX